Frequently Asked Questions about Short Sales
The list below is not all inclusive. If you are considering selling your home as a short sale, please talk to our certified, experienced listing agents, Sherry and Maria. Contact us.
1. What is a short sale? A short sale is when you sell your property for less than what is due on the mortgage. The lender must approve the sale amount. The lender must receive a package that includes information on your financials, the offer and a settlement statement that tells them a net amount to expect from the sale. Whether you have one mortgage or two, you can request a short sale as long as you meet eligibility requirements.
2. Do I have to have a hardship to sell my home as a short sale? Generally, yes, but there are exceptions. We have gotten banks to approve short sales when the seller had to relocate for a job opportunity. Much of this is at the lenders discretion and they are all different. Hardships are usually defined as loss of income or reduced income making it impossible for you to continue to pay your mortgage each month. There are government programs available that you should look into first if you have reduced income and want to stay in your home. Go to www.makinghomeaffordable.gov for more information. You may be able to negotiate a lower mortgage payment with your current lender. The lenders do look at a financial statement that you will fill out so it is generally necessary that you do not have large sums of money at your disposal that could be used to pay off the deficiency. In our experience, they have not gone after retirement accounts and seem most interested in liquid assets.
3. Can I live in my home while it is being sold? Yes. In some cases, under a government program called HAFA, you may even receive a sum of money to help you move. You have to qualify for this program by living in your primary residence (the home you wish to sell) and have a financial hardship. Even if you do not qualify for HAFA, you may live in your home while we sell it if you wish.
4. How long will the sale take? We try to get an offer on your home in the first 30 days it is listed. This gives us time to negotiate with the lender and keep you out of foreclosure. It will take about 30 days to get an answer back from the lender, sometimes more. The lenders are backed up now with hundreds of files on their desks. We give them a complete package and negotiate hard to get you an answer as quickly as possible. Once we have the approval letter from the lender, they generally give 30 days for the buyer to close. If there is further counteroffers and negotiations that go on, this process can be delayed.
4. Can I get any money out of the proceeds of the sale? No. Lenders are losing money on the sale of the home and will not allow you to get proceeds from the sale, including any escrow balances that may remain. As noted above, if you qualify for HAFA, you may receive a stipend to help you relocate.
5. What will happen to my credit score after the sale? Generally a short sale will show up on your credit account as a loan paid less than full. This will generally drop your score by about 100 points, which is much less than a bankruptcy or foreclosure that drops your score by about 300 points. Your credit score will be lowered more if you are behind on several mortgage payments than if you are not. It may be possible to get your short sale approved without being behind on mortgage payments.
6. Will I be able to purchase a home again and if so, when? Yes. It is easier to purchase a home again after a short sale than after a foreclosure. How long it takes will depend on what your credit score was like before the short sale and if you have stopped paying your mortgage during the short sale process. If you had a high credit score before the short sale, over 720, then it may only take you a year or so to get back to that level. There are no mandatory waiting periods for lenders to give you another mortgage but if you are late on payments some will make you wait 3 years to qualify again. Others will just require a larger downpayment. With FHA you can qualify with standard downpayments as long as you don't have late mortgage payments. These guidelines change frequently, so check in with our lenders.
7. Can the bank come after me for the difference in what I owed versus what they received in the sale? This is called a deficiency judgment and yes it is possible but much less likely than it used to be. In 2011, we were successful in getting releases from deficiency judgments from all lenders. This is an approval letter for our clients that releases them from this additional debt, basically a promise from the lender to not come after you for the difference in what is still owed.
We're happy to talk to you regarding the possibility of doing a short sale to see if that is the best avenue for you. We've been doing short sales for over 5 years (since before they were so common) and we're certified. We also use the expertise of attorneys to facilitate the settlement with the bank. Have more questions? Please let us know how we can help.